CEO Series: Mastercard’s Ajay Banga on Promoting Financial Inclusion
Ajay Banga, the executive chairman and former CEO of Mastercard, has spearheaded a strategy focused on serving the previously unbanked via new technologies. During his 11-year tenure as president and chief executive, the company tripled revenues, increased net income six-fold, and saw its market cap rise from below $30 billion to more than $300 billion. He attributes this growth to setting ambitious goals, planning for the long term, and ensuring that all employees and customers feel valued.
ALISON BEARD: Welcome to the HBR IdeaCast from Harvard Business Review. I’m Alison Beard.
Each Thursday this May, we’re bringing you a series of interviews with some of the world’s leading current and former CEOs, to hear their perspectives on their most important challenges, and aspirations.
Today, we’ll hear a conversation I had with Ajay Banga, the executive chairman and former CEO of Mastercard, during our recent virtual conference HBR Live: Leaders Who Make a Difference.
Before becoming board chair, Ajay served as President and CEO for 11 years, a period in which the company tripled revenues, increased net income six-fold, and saw its market cap rise from below 30 billion to more than 300 billion.
This growth was driven in part by a strategy that focused on serving the previously un-banked via new technologies. Before Mastercard, Ajay held a variety of senior roles at Citigroup around the world, and at Nestle and PepsiCo in India. And I was excited to speak with him about his tenure as ceo, the role financial inclusion has played in its success, and how he’s also making the organization a more inclusive one.
ALISON BEARD: Ajay, let’s start with financial inclusion. Why was that such a core part of Mastercard’s strategy during your tenure?
AJAY BANGA: Well, we are in a business where, 11 years back, 85% of the world’s retail transactions of a consumer with a merchant were still happening in cash. I’m not even talking about B2B, which has all kinds of inefficiencies built into it, but just retail transactions. And so, trying to figure out a way to target the aperture of the company’s competitive desire, rather than focusing on the 15% that is already electronic, it was more to go towards the 85% that was in cash.
And when you got to why that cash existed, among many other reasons of infrastructure and cultural acceptance and the like, one of the biggest reasons was exclusion from the financial system. And more than 2 billion people did not have a bank account, did not have an identity, or were under-banked in different ways.
And so, we realized that to get at the cause of getting at cash, it wouldn’t be enough just to add more terminals, or get more banks to issue cards, or bank accounts, or accounts of a form or fingerprint. But you had to get to the queues and generation of cash.
And turns out, the single largest generator of cash is governments attempting to raise their own citizenry, salaries, pensions, benefits and the like. And so that kind of led us down the pathway to studying why that happened. And that led to the idea of trying to include more people in the system.
The other side of it is very frankly that if you are in a company like ours, we are looking out a few years. We’re a company that relies on people consuming. If you consume, the benefits of that consumption expenditure flow through into our bottom line as well. And so it’s in our own self interest to help promote a healthy community, and to help promote a wider and broader middle-class, bring more people up from the bottom of the pyramid. And that, to yet again reinforcing the idea of inclusion being a very sensible place for us to focus on.
ALISON BEARD: So you set some pretty big goals when you went for this strategy. You wanted to serve 500 million un-banked people by 2020, you’ve now set a goal to serve 1 billion by 2025. Why are those specific public targets so important?
AJAY BANGA: Well, the first 500 million was actually done in the course of a public meeting with the World Bank and the IMF back in 2014. But in those days, Jim Kim and Christine Lagarde, Queen Máxima of the UN, and they were guarding me on saying, “This is great. You want to do all these things. And you’re began to do some of these, but give us a real plan and objective.”
And I said, “You know that 2 billion people without identities, maybe us with our partners, governments, and banks, and merchants, and transit authorities, let’s make a big commitment. We’ll reach 500 million by the year 2020.” There was no science to it. Nothing other than the desire to have a big goal, so we could all align our interests in the company, and make sure that we brought the full of ourselves to the play every day. Our technology, our capital, our people, our ingenuity, and make it a key part of the company’s mission.
That’s how that began. Come 2020, and lo and behold, we actually find our way to the 500 million. And now the question is, so what’s next? So we said, let’s up the ante and get it to a billion in the next five years.
But we’ve also added that we’re going to try and reach 50 million micro SMEs, and 25 million women entrepreneurs during that period, because those two clearly are driving parts of the energy of our economy. And so the big numbers are to get attention focused, energy focused, and make sure that the company brings full of itself to the party.
ALISON BEARD: So tell us a little bit about the technological investments that you had to make to execute on that plan.
AJAY BANGA: There’s a lot you’ve got to do. By the way, one little thing on the big numbers also is, that the fact is it’s a big problem. It’s a very large issue when 2 billion people are left out of the system. And by the way, this is not a developing country problem only. It’s a problem in the developed world as much as it is in the developing world.
There’s 40 million people estimated in the US who are under banked. It’s about 70 to 80 million in developed Europe. So it’s a challenge wherever you live and work that you’ve got to go and do something about this.
Back to your idea of technology, the fact was when we started, it looked like all we had to do, we could do at that time, was try and use the physical form factor of a card, and use the chip on the card to put information about the consumer that in this case, in the case of South Africa where it began, it was about trying to put the biometrics of the individual on the card, which the government had collected.
And then when the individual went with that card to a point of sale or an ATM to take out their cash, we were able to compare the biometrics on the card with the biometrics for the person and certify that this was the person they were meant to be. Because in social benefit distribution, you’ve got reasons to prove they’re alive, and they are who they are, and so on.
But then as you go along, you realize you don’t really want them to go to an ATM and take out cash and cut out the agent, the middleman who actually is the sticky fingers in this whole process. But to get to an enabling them to use it at a point of sale, and then terminals are a problem, because terminals used to cost a lot of money those days.
Well now terminal technology has moved very far, with dongles, with QR codes, with the ability to enter a pin on a glass on a phone. And so any phone can become a device of acceptance. All that is work that’s happened with us and other companies over the last seven, eight years in an effort to broaden this and reduce the cost.
And then of course, it is why just the card, why not just a fingerprint? Why not on a phone? Why not basically an account in the cloud? And that’s all the technology that’s been developed in this period as well.
So there’s a series of things going on that are coming together to enable the inclusion to begin. But to issue an account is not enough, Alison, you’ve got to get people to use it. Build a history, and then change their lives as they can access insurance, and credit, and a savings instrument at the right price.
ALISON BEARD: Serving the un-banked, entering emerging markets, that doesn’t seem like it necessarily will be a money-making strategy. But you made the point that you wouldn’t have pursued it if it didn’t make good business sense. So how did you make that case to shareholders?
AJAY BANGA: Yeah, well, it is not a money-making strategy. There’s still basically snet losers on financial inclusion efforts. But the idea was very simple, that if you go back to shareholders and tell them that 85% of the market is still in cash. And one of the best ways to reach that is to reach the source of the largest single source, which has governments. And that leads to inclusion.
So we laid out the fact that our company is in this for the longer term. Now don’t get me wrong, every investor expects you to deliver results in the year, in the next two, three years as well. You cannot say that 10 years later, my successor will reap the benefits of my work, although I did say that. And my successor now got that as his first task, saying, hey buddy, time’s up, you’ve got to figure out what you’re doing with the work we did.
But if you go back before that, the idea was to lay out that there is a longer-term vision, but you’ve got to keep delivering along the way. And I think that’s what you have to do as a CEO, is you’ve got to be able to do well, and do good at the same time.
And if you can do those two things, walk and chew gum at the same time, and by the way, it’s not just with inclusion, it starts with your employees. And you’ve got to do that, and do well at the same time. You have to deliver revenue and profitability targets and goals, and find your way through that. And I think as a company, we were fortunate. We did well on the year, and the two year, and the three year. And that bought us the right with our investors to continue to look out five and 10 years. It’s a little bit of chicken and egg, what comes first here?
ALISON BEARD: Ajay, how has Mastercard work to do right? Not just by its customers and its shareholders, but also its employees?
AJAY BANGA: With employees, Alison, and all this fits into a bigger picture I’ll give you a view of, but with it’s employees, what we said was, you’ve got to have employees who are engaged with the company for all the right reasons. And if you get into understanding their motivations, of course they want a career path, and they want career development, and they want to get paid well. But we tried to think of the things that would otherwise impact their life over time, and be fair about them.
So give you an example, in our company, if you put 6% of your money into a 401k every month, we will give you 10%. If you do the math, if you join us as an undergrad, at a salary of about $55,000, at the age of 25, and you retire at the age of 55 at $250,000, which by the way, would make you a below average employee at Mastercard. But let’s say that’s what you’ve got to. If you do the math on a compounding of 16% of the very normal return over those years, it actually leads to a fairly sizable nest egg. That is the first logic.
But similar one is, everybody, a male or female, in our company gets 16 weeks of paid leave for paternity or maternity, all fully paid. And that’s been in place for our employees. And so on. The idea is to make them feel that we are here for you, that our hands are on your back, that my job is to give you a level playing field so you can run to win. And that’s the objective. In our company, we call it our Bringing Our Decency Quotient To Work.
So not just enough to bring your IQ and your EQ, you got to bring your DQ to work, and make people feel that you’re there for them. Last year in the COVID crisis, the first commitment we made was that we would lay off nobody during the crisis. And because, by the fact that our company did have challenges around revenue, our revenue has been growing in the high double digits for a while. Last year was a decline in revenue. It hurt our revenue. It hurt our profitability.
And we stuck to our logic of making sure that employees are not worried about their jobs. They were focused on their health, their family, and their clients, and not their job. Things like that. Others do this too. Don’t get me wrong. I’m just saying that these are very important ways to engage employees in the company.
ALISON BEARD: And have those benefits, that culture, resulted in increased employee engagement, productivity? Do you have tangible evidence that it’s working?
AJAY BANGA: Well, the engagement is there in our engagement surveys. And not just internal surveys, you can look at what people say about us outside, employees and different sites. And you’ll get a sense of that. My belief is that companies, you started about the idea of do good and do well at the same time. And I believe that a lot of the issues in the world are centered around three sides of a triangle. And one side of the triangle is the trade off between one and many. That’s the inclusion exclusion. It could be ethnic, gender, sexual orientation, growing up on the wrong side of the tracks, didn’t go to the right school, was born in a poorer country, whatever.
The second side of the triangle is the trade-off between humanity and nature. And the reason that the two sides of the triangle persist is because the bottom of the triangle is the trade-off between long-term and short-term. And too many people, politicians, CEOs, teachers, parents, are incentives are aligned to be in the medium to short term, while the problems we’re dealing with are really longer term in nature.
Finding ways for companies to bring their commercial appetite to the table, to bring their capital and their ingenuity, and their people, and their technology, in a commercial way, to the party. To tackle those two sides of the triangle is what this is all about. And that’s why you need a longer view than just the short or medium term. We just have to do this. It is the way the world will grow. And it is the way that people around us are speaking. And that’s why, when you have words like stakeholder capitalism and conscious capitalism, coming up, my fundamental problem with those objectives of conscious and the like, is that it feels like you’re attaching a good objective in front of a bad word called capitalism, to make capitalism more palatable.
And I don’t believe that. I think capitalism does well. But like any other system, it needs guide rails. It needs adjustment. It needs corrections along the way. Otherwise, the biggest beneficiaries start controlling where it goes.
ALISON BEARD: Do you think that a vast majority of capitalists are changing their colors? Have you seen a sea change in terms of the investment community, for example, embracing your worldview on how corporations should operate?
AJAY BANGA: I don’t want to call it changing the colors. I think a number of capitalists and other CEOs are doing really good things every day themselves. Could we all do more is what I’m talking about. Do the guard rails have to be defined in better ways for all of us to do more? Absolutely.
And I think one of the biggest changes that’s coming about is as the investor community is beginning to have a greater dialogue around the responsibility of companies towards their employees, and their ecosystem, and their consumers, and their customers, I think getting that done right, and moving from talk to measurable objective quantifiable ways of measuring progress on those fronts will be really important.
And I think here, perfection is the enemy. We’ve got to start, and put up with the fact that these measures won’t be perfect for every company. But let’s not try and get to the lowest common denominator so that everybody’s happy with it. Let’s set the tone, let’s get going. And I think we’ll find that will lead to a better and better outcome.
ALISON BEARD: I want to talk a little bit more about talent. You and I worked on a recent HBR article, and I was struck when I talked to you about how hands-on you are, in terms of your development of people. But Mastercard is obviously a huge global organization. What steps have you taken to ensure that the company is getting talent right at all levels, especially in terms of diversity?
AJAY BANGA: That’s a long question with a long answer, but let me give you two or three things at the top of the house. I think the first one is, every single employee in the company gets a development plan in the middle of the year. That development plan is one sheet of paper. It has four boxes, basically.
One box says, what are you doing well? One box says, what do I think you can do more of as your boss? A third box says, how do you rank up against a few attributes of leadership and behavior that we value? Thoughtful risk taking, a sense of urgency, and empowerment and accountability, the things we value in our people. And then the last box, what do I think you should be doing in three years or five years? And whose job is it to get you there?
Because leadership is a privilege, and you pay back that privilege by investing in their development. And once you put that together, you have to have that dialogue with that employee, share that sheet with them so there are no secrets here. And then it leads, over the course of the rest of the year, to a talent development plan for the company where we look at, where the puck is going, where’s the company going in its future.
Having a concept of what you need, to where the puck is going, and what skills you need compared to where you are, and then how are you going to fill them, including hiring new people, but also developing people. So here, a development plan has to sink in with that skills gap. That’s the second big step.
Now the third big step is to encourage people to surround themselves with people who they didn’t know earlier. If you surround yourself with people who look like you and walk like you, you will end up with low levels of diversity of thinking, not just of how you look, not just of mere ethnicity.
I look different from most CEOs in America. And I tell everybody, if you’re telling me I got my job because I looked different, I will leave. I want to be respected for what I bring to the party. And the way you respect me for that is to recognize the true diversity comes from my background, my exposure, my education, my experiences being different from yours. And so when the two of us are at a table together, that difference in our backgrounds is what drives innovation. That difference is what drives the strength of our company, because it does not expose us to the same blind spots.
ALISON BEARD: So that article that I mentioned was about the recent CEO succession. And you did end up with a white man in that role, a highly qualified white man, an internal star. But how are you building the pipeline in the senior ranks so that it might be possible for a woman or another person of color to succeed him?
AJAY BANGA: So there’s a number of steps being taken at each level in the company to ensure that we get the right representation of people, back to that diversity point. And that those steps, have these people being picked on and developed to come there.
So for example, the lady who now runs our North American business, Linda Kirkpatrick, a decade ago was actually in investor relations. And over the years, we have moved her four to five times, having identified her as a high potential person, and stretched her through different assignments, which comprise both staff assignments and line assignments.
And I think took her out of her zone of comfort repeatedly, with encouragement, with mentoring, with guidance, and help. And today she is one of the CEO’s direct reports, with a real pathway to future growth and success. And that’s just, you do it step-by-step. You develop from a longer-term perspective.
You can also, of course, use jobs that come up to hire in talent from outside that enable you to build out that diversity. And we’ve done that very often during the period. So the lady who ran international markets for us until recently, and now has retired, was an external hire. And she was there five, six years. She’s actually now a wise chair with us, retired from that role, but is focused on diversity.
So there’s a series of things. And then there’s programs that we run for women to come back to the workforce after they have a child, encourage them back into the company, give them the right environment to feel that this is the place for them. And we’ll be right there for them, remember hand on the back to grow.
ALISON BEARD: Terrific. Well, we have a ton of audience questions coming in, so I want to jump to those right now. Noel is asking, how do you attack your new goals while not steering your core business off track?
AJAY BANGA: So one of the things we did in our strategic effort to the company was to say that we are going to grow our core, diversify our client base, and build new businesses. That was the basic three pillars of the strategy in an effort to attack cash. And the enablers would have been our technology, our brand, our data, and our people. So remember the three pillars, grow the core, diversify our client base, and build new businesses.
And I told everybody in the company, I will spend 50% of my time on growing the core, because that is what gives us the ability, and the right, and the financial wherewithal to aspire for diversifying and building new businesses.
And then, you create KPIs and standard operating measures that allow you to evaluate your progress on the part where you’re growing your core. It could be revenue, it could be share, it could be the number of products to the customer. It could be different things you build, by geography, by product. Those KPIs are standard. We do monthly reviews on them. They’re published for the senior management. It’s a very clear evaluation methodology.
Bonus plans doing incorporate a fair share of the growing of the core. That’s how you get paid, all the way through the company. And you make sure that people understand that you will celebrate the new things that are happening, but boy, you want to start by celebrating the core. And so getting your vision clear, getting the mission clear, getting objectives clear, and keeping them in as simple a way as possible so the newest entrant to the company can understand them. And then celebrating success is all a part of this.
ALISON BEARD: So we have another question from Maria. She asks, do you have any alliances with multinationals from other industries or other companies to help them reach the market that you’re talking about it? If yes, can you please give an example?
AJAY BANGA: Sure, absolutely. Actually, we can’t do anything ourselves. We’re not a direct to consumer company. We’re a B to B to C company. We build the infrastructure, and the rails that everybody else rides on. So my entire business is networks and partnerships. But outside of banks, and merchants, and the ones you would expect, let me give you partnerships with companies like Unilever.
Some years ago, we said we’ve got to try and reach micro SMEs in Africa. And they are essentially, the woman of the house, when the husband and the kids go off for the day, she opens a little store in front of her house and has a limited range of products to sell, bought from companies like Unilever.
But nobody gives her credit, because she’s outside of the financial mainstream. But if you would underwrite the transaction flow of how much she’s buying from Unilever and selling every day, or every week, you would know that you could underwrite her for credit.
You don’t know what she’s selling because she’s in a cash economy. You do know what she’s buying because the Unilever company distributor has the bills. So we digitize that entire supply chain, and use AI with banks in Africa to underwrite that transaction flow and allow credit to be extended to that lady. And then every time she bought produce from Unilever, the repayment of the bank happened.
And we had an amazing success story, where Unilever’s sales went up, the banks were delighted at excellent paybacks. That model is now being taken to multiple countries around the world. And as part of that 50 million micro SMEs being included goal that I talked about at the beginning. That’s one company, there are many like that.
ALISON BEARD: I’m going to jump back to one of my questions, because I want to make sure we touch on the issue before we let you go. Speaking of real-world problems, a focus of yours is cybersecurity. So what should companies be doing to protect customers, whether it’s individuals or other companies or governments, from these threats?
AJAY BANGA: Cyber security is the single most important thing for the next decade because the advent of 5G and connected devices will multiply enormously. The vectors of attack, the surfaces of attack that are available. We’ve got to find smart ways to enable our consumers to interact with this amazing technology of digitization and the internet and all the benefits that flow from it, while ensuring that their information is kept safe. But also, a site part to cybersecurity, that their personal data is protected and used by them as they feel fit, not in a manner that they don’t understand. Both things are important. One has to do with stealing data. And the other one has to do with using their data without their informed consent. And I call an 18 page legal disclosure as uninformed consent, because nobody can read that.
And so, I think there’s a lot of things here to be worked on and most companies need to have some principles. On data, the principles are very simple, actually. The first one is for the consumer, it’s your data and you must benefit from it. The second one is, you should know what’s being collected about you in very simple terms. The third one is, if you want to be forgotten, it should be easy for you to do that. Fourth, if I, as a company, collect your data, I must collect the minimum that I need to do my job with you. So in Mastercard, I don’t know your name or what you bought when you use a card or a phone or a fingerprint to shop. I only know a dollar value, a 16 digit code and a time and merchant code. I don’t know your name and I don’t know what you bought, because I don’t need to.
And the fifth item is, that whatever I collect I must keep it safe. That is the cyber part. Encryption of data in motion and addressed is probably going to be really important to ultimately make data safe. We’re doing a number of things in that space and tokens, which power Apple Pay, for example, and a number of our own card transactions, which are cryptogram protected, 16 digit numbers that garble the original number, and require you to unlock it, to do business with it. That kind of stuff is going to be really important.
But then, there’s very simple things, passwords. I mean, passwords that require people to change every 30 days. How many passwords do you have to remember? And therefore, people choose passwords like, “Password,” or like, “1234567,” which are the two most popular passwords in the United States. That’s not useful. Anybody can guess those. And so, moving from password regime to a more authentic second factor or biometric enabled regime has to be where we go. And I think most companies are going to help take the journey on that space. So there’s a series of things of that type that need to be done between companies and their consumers and their employees to create a safer ecosystem.
ALISON BEARD: All right. Well, I want to end on a positive note. So I’m going to ask an audience question from Anna or Ana. She asks, “What inspires you?”
AJAY BANGA: My wife and children, because I am determined that, by both my girls and my wife, I am determined that they should look on me and say, “He did well, while he was around, but he did a really good job as well.” And I think finally, it’s your family that is your strongest critic and your best judge and your biggest supporter and your biggest cheerleader. And I get very inspired when they think I’m doing well, I’m doing good at the same time.
ALISON BEARD: I feel exactly the same way about my family. Ajay, thank you so much for being with us today.
AJAY BANGA: It’s a pleasure, Alison. Nice to see you again.
ALISON BEARD: That was Ajay Banga, Executive Chairman of Mastercard, who I spoke to at our recent HBR Live: Leaders Who Make a Difference Conference. For more of this CEO series and our regular episodes on the management ideas that matter – from Chinese innovation lessons to ways to talk yourself up without turning people off – look for the HBR IdeaCast wherever you get your podcasts. Please subscribe and, if you’re so inclined, leave us a review.
This episode was produced by Mary Dooe, we get technical help from Rob Eckhardt, Adam Buchholz is our audio product manager. Thanks for listening to the HBR IdeaCast. I’m Alison Beard.